Australian Miners Overseas: Australian METS Mission to Moscow

You can travel to almost any mine site around the world and be rest assured that you'll bump into at least one Australian.

And it's no surprise.

Our mining industry is known for producing highly trained innovative people who are in demand globally.

And the fact that we don't mind a bit of travel (considering it's a five to six hour flight just to get from one city to another) doesn't hurt either.

Throughout Africa, Asia, South America, the back of beyond, you'll find an Australian miner somewhere.

Speaking to Dan Sullivan, the trade commissioner at the Australian Embassy in Lima, Peru he said "Australians are recognised as being great at bulk mining and transportation, as well as supplying remote mines, due to their experience in the harsh Australian mining industry".

"Our engineers are so used to doing bulk mining projects for demanding clients in rough conditions that they often bring their own technology and innovations with them."

So when the Australian mining boom took off we saw a wealth of mining knowledge and expertise again flooding the country, along with many businesses taking off in line with the boom to take advantage of this new opportunity.

It was figurative, and literal, rivers of gold for miners and the supporting mining equipment technology and services (METS) companies, which were estimated to be worth more than $90 billion dollars and employed more people than the mining sector itself, with the most recent count coming in at around 386 000 people.

But like everything, the good times didn't last.

The mining boom came to a sudden crashing halt.

Work dried up.

New mines and expansions were put on hold.

Investment dried up.

Miners were hit hard, but those who were hit the hardest were the ones that the news failed to cover - how it affected the METS companies supporting the industry.

A massive market suddenly became tighter, more restricted, and the few jobs left were fiercely fought for.

So what could they do?

Turn their sights overseas - but where?

The new economic plan

Looking at current trends and new markets, it seems that many Australian METS companies may be looking north, towards Russia in particular.

Now a relationship between Australia and Russia is not completely out of the realms of reality.

Similar to Australia in terms of distance, but tripled, Russia is one of the world's largest mining nations and produces nearly every type of valuable metal and mineral.

More than 20 000 mineral deposits have been explored and uncovered, yet only a third of these have been mined.

According to Austrade the nation holds around 15 to 17 per cent of the world's total mineral deposits and produces about 14 per cent of the world's total mineral output.

So it's no surprise that the Business Monitor International forecast the value of the Russian mining sector to grow to US$259 billion by 2015, even with the global slowdown in demand.

Australia's mining sector, by comparison, has slowed dramatically as it downshifts gears

from an investment heavy construction phase into a more production focused era.

According to a recent BIS Shrapnel report the construction and METS industry, which supported much of the boom, is expected to decline by 20 per cent over the next five years.

BIS Shrapnel senior analyst Adrian Hart stated in the report that miners "are going to extraordinary lengths to cut back on the high costs/low productivity culture which characterised the construction phase of the boom".

In laymans terms - there will be a huge rationalisation towards efficiency.

"We expect that mining operations employment will rise only 11 per cent over the next five years, mainly in oil and gas and iron ore, whereas mining construction employment will slump 40 per cent. Given the strong increases in production expected, this translates to a 60 per cent labour productivity surge over the next five years."

A recent PwC report (See pages 22-23) added that "only the fittest and most agile" contractors are going to see through this Australian rationalisation period.

It went on to say that in FY 2014 the pressure will continue for mining service providers, forcing them to diversify across the value chain, service offering, commodities, and most importantly - geographically.

In short, this is not great news for many METS companies.

So how viable is a big move to new markets, and why Russia?

Risks vs. rewards

"Russia is a huge country with huge potential," Robert Trzebski, the CEO of the METS association Austmine said.

"Russia is still much cheaper than Australia, although there are cost pressures, but it does have a tremendous wealth of resources."

One of the major selling points for the nation is that despite having nearly a fifth of the world's mineral deposits, it is still grossly underexplored.

Some of the major challenges like in the fact that "it is still highly disorganised and state driven", yet the "opportunities still outweigh the risks, as it is a controlled risk," he explained.

"There is a young generation of Russians that are now leading the charge in mining, and they want to be part of the global business, and they want their companies to be global" and Australian METS companies are primed to play a part in this.

Speaking to Austrade's senior commissioner for Russia and CIS Elena Kirillova, she added that while there are the obvious challenges such as distance and the language barrier there is a lot of potential, and when engineers come together they'll soon find that they are speaking the same language.

"We'd very much recommend Russia as place for Australian METS companies to do business."

Making the move

Speaking to the METS association Austmine's CEO Robert Trzebski, he told Australian Mining that "the CIS and Russia are a good opportunity [for Australian METS companies]". "Russia is a huge country with huge potential."

He stated that in Australia many mining companies are "facing cost pressures, production issues, and uncertainty about policy markets, and while everyone acknowledged that it was time to get rid of the old [Labor] mob, it's understood that the [newly elected] Coalition won't work miracles but that at least some changes are going to made".

"However costs still remain high and efficiency low, whilst union pressures stall progress; and as a first world country our costs are only going to increase.

"Put simply Australia is getting tight, and there is not enough work so many METS companies who work in this space have to look overseas. Luckily Australian mining expertise is recognised globally, so we can leverage from this respect to do business overseas.

"We're encouraging METS companies to look overseas, beyond Australia right now." Austmine and Austrade have done a number of trade missions to Russia to help Australian companies get into the region.

"Last year we took 18 Australian companies over there, including GE Mining and Orica," Trzebski told Australian Mining.

Kirillova explained Austrade's focus as "providing the initial contacts and information about the range of Australian companies range of capabilities to these Russian mining companies, so they already have an idea of what Australian companies can do".

Another way Kirillova recommended getting into the region was through exhibitions, as well as the trade missions.

Austmine is working with the upcoming event Mining World Russia, to open Australian companies to the region and its mining potential.

Commenting on the exhibition, Trzebski said this is about "getting Australian miners and METS companies connecting with the Russian companies".

He added that Australian companies are now making greater inroads compared to Chinese companies thanks to events like these as "while the costs may be higher for an Australian company compared to say China, it's the relationships and the services, especially aftermarket services, that we can demonstrate that set us apart".

Australians in Moscow

This isn't the first time missions have been taken to Russia and Eastern Europe.

Austrade, with Austmine, have previously taken Australian METS companies to the region to open up new business opportunities.

In 2011 the focus was on Australian mining businesses in coal seam gas; directional drilling; mine safety and rescue; mine management; underground communications systems, and mobile transport for underground mining.

However there are always difficulties when entering a new country, and apart from essentially having to restart your business in some cases, finding the 'right' people to talk to who can aid your business is always a challenge.

Austrade's Warsaw, Poland delegate Paul Sanda said "the basis of these trips is to look at ways to facilitate a more convenient entry for Australian mining players into Europe". And getting a foot in the door is important, especially in these regions.

During the trade missions and exhibitions Australian companies were able to get fairly quick entry into these markets, they met with the relevant government departments and ministers, local companies that are active in the mining space, and were able to actually visit the mines," Sanda told Australian Mining.

He also echoed Trzebski's statements, saying at the time "we've also found that the countries themselves are really receptive to what these companies have to present".

Making it easier for Australian companies - in particular explorers and geologists - a number of Russian companies have started reporting their reserves according to Australia's own Joint Ore Reserves Committee (JORC) code, set up by the Australasian Institute of Mining and Metallurgy (AusIMM).

Australia and Russia also have a nuclear co-operation agreement, which will see the country source Australian produced uranium for its energy, with the country planning to more than double its nuclear capacity by 2020.

From the coalface

But how is it on the ground from an Australia company who has made inroads and already operates in the region?

Speaking to RungePincockMinarco's (RPM) executive general manager for advisory services Philippe Baudry, he told Australian Mining that as a company that has operated in Russia for around 12 years there are some positives for Australians looking to the region.

"There are definitely opportunities, and looking at the scale of operations in the country there are some very large companies who, if you can demonstrate value, can take you interesting places," Baudry said.

"There is the opportunity to grow, and grow quickly."

He explained that many of these Russian companies are currently looking to the West, and Australia in particular, in terms of technology and gaining operational efficiencies.

"They're interested in how projects are done in Australia and how we manage our operational margins," he said, adding that RPM has brought Russian miners over to Australia to demonstrate the work firsthand.

"Now is the right time to look at entering Russia as there has been a lot of development of mines and projects, and many more on the drawing board" he said, and they are looking to maximise the profitability of existing and new operations.

He added that Australian METS companies are in a good position as "Australia has a good reputation in Russia and the CIS, because our METS companies are well regarded for our technology and development expertise".

Kirillova agreed, saying "Australian companies are viewed in Russia as being very innovative, particularly when it comes to the equipment and services in the mining sector, and right now a lot of Russian miners are looking to Australia

However Baudry stated that while he "recommended [operating in Russia] for Australian METS companies it is not an easy market - you have to prove that your technology or solutions add real value to your clients and you have to have people with industry capability, it's not the easiest nut to crack".

"The best way is to simply bite the bullet and set up an office in the region as the industry is very much relationship driven."

RPM has been operating in Russia for more than a decade, eight years of which have been on the technical side.

"Our biggest projects are with one of Russia's largest coal and iron ore producers; we're currently completing a pilot program for underground coal scheduling using our technology, after having completed geological modelling from the ground up on the same project, we're also involved in developing a number of pre-feasibility for underground and open cut coal as well as a completing due diligence on assets for potential investors."

In 2012 it opened an office in Russia, and earlier this year launched its new enterprise mine planning software at a Russian mining exhibition, and also teamed up with a Russian IT system integrator to expand its reach in the region.

Austmine CEO Robert Trzebski agreed with Baudry, stating that Australian METS companies need to focus on technology, and focus much more of its development in Australia and transfer that knowledge and expertise overseas.

Austrade also agrees, pointing to major opportunities for Australian suppliers of mining equipment, technology, and services.

The creation of a new Russian economic zone is also opening up new opportunities and untapped regions for Australian METS companies.

Citizens from three former Soviet nations - Belarus, Kazakhstan, and Russia can now all legally work, trade, and travel within each other's borders thanks to a free trade agreement, which has also essentially done away with customs barrier.

Other mining nations, such as Kyrgyzstan - where Australian miners such as KGL Resources operate in the uranium and gold space, as well as Armenia, have also raised interest in joining the consortium.

However, joining the new union does put operators in this country at a disadvantage in terms of borrowing rates, which are higher than nations in the European Union.

But trade agreements and bilateral deals aside, the simple fact remains that an opportunity does lie over the ocean, and Australian contractors and METS companies must be smart when approaching it.

"Australian companies need to access the global supply chains, and they have to show that they are capable, and the best way to do this is through Tier 1 partnerships," Trzebski said. "If they do this they can tackle the integrity risks, it's all about collaboration, using Tier 1 suppliers to accelerate commercialisation rates."

Whilst the opportunity is there, and there are risks which must be balanced against the potential rewards, with Australia's mining industry slowing and contracts getting tighter the call of countries such as Russia are getting stronger for companies that want to grow and thrive in mining.

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